Rebalancing is the process by which a portfolio’s “style drift” caused by market movements is eliminated or minimized. Style drift causes the risk and expected return of the portfolio to change. Thus, if you want to eliminate style drift, you should rebalance daily. However, in the real world there are often costs (trading expenses and in taxable accounts taxes) including the time and effort to rebalance. Thus, you want to reduce (not eliminate) style drift to an acceptable level. That raises the question of how to determine when you should rebalance.
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